The Economic Way of Thinking

My House Is Worth What?!

Coldwell Banker is out with their new, annual study of affordable housing.  The study compares similar, 2,200 square foot homes in different markets around the country.  The most expensive market is La Jolla, CA, where a 2,200 square foot home runs $2.125 million; the most affordable market is Grayling, MI, where a comparable home is just $112,675.

Macon, GA comes in as the seventh most affordable market ($139,007), which means, among other things, this young man won't be heading West any time soon!

When looking at these results, Chapter 7 of Tim Harford's The Logic of Life came to mind.  The chapter leans heavily on Ed Glaeser's work.  According to Glaeser (and Harford), many of the more expensive places to live provide residents with huge knowledge and networking spillovers.  These spillovers make residents of places like Boston and San Francisco more productive, which leads more people to want to live there and become part of the productive networks.  In other words, a virtuous circle is created.  Meanwhile, places like Macon, Detroit, and Buffalo are stuck in vicious circles with high concentrations of low skilled people.

If the Harford/Glaeser story is correct, what policy implications follow for cities stuck in a downward spiral? 

Health Care: Price And Cost

Suppose the new health care proposal does what it intends to do -- allows for more people to demand services.  Think, now, in terms of our simplest supply and demand story.  The demand for health care rises, with a largely inelastic supply.  This puts upward pressure on prices that somebody will have to pay (taxpayers, largely).  Prices tend to determine and justify costs.  Increased demand will lead to increased prices and that in turn will lead to increased costs of supplying health care services. 

The economic way of thinking would predict, in other words, that costs will rise dramatically if universal insurance legislation were adopted.  Legislators would likely call for further interventions to contain costs, and also price controls to contain price increases, politicizing the industry all the more.  Of course, any student of economics will be able to predict the results of effective price controls.

We should focus instead on finding ways (through deregulating the industry) to increase the elasticity of supply, which would tend to drive down prices and cost of services and therefore increase quantity demanded.

Commitment Devices

Jim Otteson's presentation to approximately 175 students and faculty last night was splendid; a brief summary of his talk will be coming in a future post.  This morning I'm on the road, and I'm thinking about commitment devices. 

Commitment devices are tools that lock yourself into a behavior and help you hold to your promises.  One of the classic examples of a commitment device is the policy of burning bridges behind military battalions during war. 

Here are a few examples of commitment devices that work moderately well for me:

(1) I'm currently trying to kick my coffee addiction.  For the first couple of days, putting the coffee pot and holder in the dishwasher raised the costs of making a pot.  To further raise the costs, I have thought about moving the entire pot to the attic (but that sounds like a lot of work if I ever want to cave in and have a cup!)...

(2) To avoid typing phone numbers while driving, throwing the cell phone into the back seat far enough that it cannot be reached helps one focus on their driving (or encourages shuffling through one's CD collection!);

(3) Agreeing to meet another runner at some God-awful hour of the morning to pound out a run makes oversleeping more costly.

What kinds of commitment devices do you all find effective in your own lives? 

Twitter: 80% Junk, 20% Potentially Useful

I've just joined Twitter a couple days ago.  It might be worth my time -- I've already found quite a bit of useful links.  Having said that, a new study shows that only 20% of tweets are informational.  (I found the link to that research on... Twitter.)

The remaining 80%, in my view, mostly mentions things that I have no interest in.

Brace For A Wealth Of Smith Stories

Mercer's new Center for Undergraduate Research in Public Policy & Capitalism (the site is still a work in progress!) and Center for the Teaching of America's Western Foundations are pleased to host Jim Otteson tonight for a talk titled "The Promise and Perils of Commercial Society."  The talk begins at 6:30 pm in the Fickling Recital Hall. 

Jim's  books and scholarship have helped him win a number of major awards, including the Atlas Economic Research Award (2005) and the Templeton Enterprise Award (2007).  His book Adam Smith's Marketplace of Life is one of the finest attempts to address and reconcile the "Das Adam Smith Problem."  He also has a blog that's worth following here.   

Local readers might also want to mark their calendars for upcoming talks by Steve Horwitz (Monday, October 26) and Bruce Benson (Wednesday, November 18).  Details are forthcoming.

It Was Just A Matter Of Time

Back last October we predicted that farmers would call for bailouts to get their share of stimulus dollars.  Well, take a look at what's going on in Upstate NY's dairy industry. An excerpt:

How bad is the current crisis?

Across upstate, hundreds of dairy farms have already shut down, and conversations that I have had with local farmers makes clear that many more could face a similar fate. Sen. Schumer says without this relief, even bigger farms with relatively healthy finances will have difficulty hanging on for another six months.

The time to act was in April, when Albany’s budget was being put in place. But it’s not too late to help save dairy farming.

The federal stimulus program, which is supposed to create and protect jobs, is the perfect avenue for doing so. Under the stimulus, every state, including New York, has access to discretionary funding to use in ways that will strengthen our local economy. Dairy farming is such a critical part of the local economies of so many Upstate communities that the industry is custom made to fit that profile.

How did we know?  It's called the economic way of thinking.... clear conjectures about a complex world.

ADDENDUM:  The quote is from Cathy Young, a Republican state senator.  More here.

New Research Finds That The Great Depression Improved Health Among Its Sufferers

According to a new study in the Proceedings of the National Academy of Arts and Sciences.  I posted this over at The Austrian Economists blog.

One Year Ago Today

There have been a lot of "on this date" stories and television programs discussing different events related to the financial crisis from one year ago.  On this date one year ago, Pete Boettke and I published this op-ed in the Atlanta Journal Constitution.  Here's the New Yorker cartoon mentioned in the piece. 

I know I haven't wavered from what I said then, and it's clear from posts like this one that Pete hasn't either. 

Ellen, Oprah and Me, Too

I'm now on Twitter.  Economics, not hair issues.

Sweet!!!

Steve Sweet from the Charles G. Koch Charitable Foundation will be visiting Mercer all day today (Tuesday) to discuss internship and associate opportunities with the foundation.  He also is a great source of more general advice on graduate programs, law schools, and DC employment in general.  If you're a Mercer student reading this, come on by the SSBE today to talk to Steve and/or consider attending his evening presentation. 

Richard Ebeling On The Crisis

Austrian economist Richard Ebeling delivered this fine, understandable lecture on the financial crisis to an audience at Northwood University.  Take a look.

Arrgh, matey

One of my old pals maties (or is it, mateys?), Peter Leeson, gave a great interview on Fox Business the other day.

(This is great timing, Pete!  I had just plugged you a couple of days ago in class.  While teaching Intermediate Macro, which has been a blast so far, I dragged out one of my small "r's" for interest rates a little too long and went, "Arrrrrgh."  That made for the perfect opportunity to take a break from Keynes for a moment and tell folks about my matey, Peter Leeson.  I don't think Mercerians will believe you're for real until we get you down for a visit, but this video should hold them over for a while!)

HT: Pete Boettke

The Scourge of McCarthyism

The subtitle for the EWOT blog reads: "Clear conjectures about a complex world."  Before the 2009 baseball season I made a clear and bold conjecture about the Chicago Cubs.  So far, so good on that long-term prediction.

Here's another sports related one: the Green Bay Packers will never win a Super Bowl with Mike McCarthy as their coach.  The man is too indecisive, sometimes too conservative  and sometimes too aggressive, and too predictable in his play calling.  He has also forced me to eat Humble Pie, as I came out on the losing end of the following bet with my friend, Bob Lawson:

"If Ochocinco scores a TD against EITHER the Pack or Vikings, I [Scott] dawn the Bengals jersey.  If not, it's you [Bob] dawning a Packers jersey.  The loser must post embarassing jersey pics to Facebook."